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How to Avoid Chapter 7 or Chapter 13 Bankruptcy

How to Avoid Chapter 7 or Chapter 13 Bankruptcy

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Daniel Cohen
UpdatedJul 17, 2024
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    3 min read
Key Takeaways:
  • Consult with an experienced attorney to see if you qualify for Chapter 7 bankruptcy.
  • Be smart about evaluating all the debt relief alternatives to bankruptcy.
  • Debt Settlement typically offers the lowest monthly and overall costs of any bankruptcy alternative.

Learn All About Chapter 7 and Chapter 13 Bankruptcy Alternatives

Bankruptcy offers some people a clean slate, but it is by no means an easy solution.

Bankruptcy destroys your credit. You may be forced to sell your assets. It can also affect your future employment. In addition, 2005 bankruptcy reform laws made it more difficult to file for chapter 7 bankruptcy, and limited other bankruptcy rights.

If you want to preserve your credit, you will be much better off if you do whatever you can to avoid bankruptcy. Although it is not easy, it is worth the effort. Follow these steps to avoid bankruptcy.

Quick tip #1:

Want to get out of debt at the lowest cost while avoiding bankruptcy? Get a no-cost, no-obligation analysis of your debt solution options from a pre-screened debt relief provider.

VIDEO: Bankruptcy - What is Bankruptcy?

Total All Your Debts

Only once you have a true picture of your debt can you take the next steps to avoid bankruptcy. Gather every bill, every statement, and every document that has an effect on your financial situation. Total up both your debts and your assets. Include your mortgage as a debt and the value of your home as an asset.

Now break down those debts into good and bad categories. Good debts are home loans and student loans. Bad debts are credit card debts, personal loans, high-rate car loans, and medical bills.

You should also list the interest rates and minimum payments for all your debts.

Reduce Your Expenses

Now total up all your expenses — everything you spend. Even the $1 you spend in the vending machine at the office should be included. Divide those two figures into necessities and non-necessities. Necessities are items you need to survive, like groceries and housing.

Non-necessities are nice things to have, but which you do not need, like that vending machine candy bar or designer sneakers.

Add up the minimum payments on your debts and the monthly cost for necessities. This is the minimum amount you need to cover your bills for the month. If you do not earn enough to cover them, then you need to find a way to reduce your minimum debt payments or necessities. Even little steps like switching from name brands to generics and canceling cable can help.

If you can cover your monthly bills, but are not making enough to pay down debt, then start cutting non-necessities until you free up enough money to reduce your debt.

Consolidate Debt

If you have multiple small debts, getting rid of any one of them can be a challenge. By consolidating debt, you not only reduce the total number of bills and minimum payments you owe, but you also reduce the interest rate. So you can reduce your debt faster.

In addition to consolidating debt, you can get out of debt faster by paying more than the minimum payment every month. Funnel as much money as you can towards your debt every month.

Consult a Credit Counselor

Contact a reputable credit counselor if you need help totaling your debts, finding ways to reduce expenses, or consolidating debt. In addition to teaching you money management, they can help you qualify for a consolidation loan, whether it is in the form of a home equity loan or a personal loan. In some cases, they can help you set up a debt management program. Although there are fees, it may be what you need to avoid bankruptcy.

Consider Debt Settlement

If your debt vastly outweighs your income, then you may need to consider debt settlement. A credit counselor may be able to negotiate with your creditors to reduce the balance owed. Although debt settlement will ding your credit, it is not as big a hit as bankruptcy. Debt settlement should not be taken lightly, but it is a way to avoid bankruptcy if you have exhausted all other options.

Get rid of your debt faster with debt relief

Get rid of your debt faster with debt relief

Take the first step towards a debt-free life with personalized debt reduction strategies.

Choose your debt amount

Get started now

Or speak to a debt consultant  844-731-0836

Struggling with debt?

If you are struggling with debt, you are not alone. According to the NY Federal Reserve total household debt as of Quarter Q1 2024 was $17.69 trillion. Student loan debt was $1.60 trillion and credit card debt was $1.12 trillion.

According to data gathered by from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1,739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 8% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.

The amount of debt and debt in collections vary by state. For example, in Alaska, 17% have any kind of debt in collections and the median debt in collections is $1868. Medical debt is common and 4% have that in collections. The median medical debt in collections is $456.

Avoiding collections isn’t always possible. A sudden loss of employment, death in the family, or sickness can lead to financial hardship. Fortunately, there are many ways to deal with debt including an aggressive payment plan, debt consolidation loan, or a negotiated settlement.



ssophie, Feb, 2011
That is very wisely select action to manage debt because if you take a wrong decision it may be very harmful for your money.